Sum $4,000.

00
nper 6
rate 4%
PV $3,161.26

PMT 30000
Nper 13
interest rate 14%
PMT growth rate 6%
PV $237,113.28

1 2 3 4 5 6 7
PMT -200000 -200000 -200000 -200000 -200000 -200000 300000
DCF -175438.5965 -153893.50569 -134994 -118416 -103874 -91117.31 119891.2
NPV -64815.86742
IRR 12.66%

Investment perpetuity fromgrowth value of perperuity

Project A -10.5 1.87 1.87 1.87 1.87 1.87 1.87
Project B -10.5 1.43 $1.47 $1.51 $1.54 $1.58 $1.63

16%
13%

MT302 2000 200 10

MY456 3000 240 12.5
MT347 6000 450 13.33333
OFFICE 1250 14
MG201 2500 150 16.66667
MC237 4900 250 19.6
MB345 4000 200 20
MG231 4000 150 26.66667
NOPAT 250
Dep Exp 114
Capex 215
change in NWC 11

FCF

1 2 3 4 5
cash 4 11 16 16 16
A/R 21 25 24 21 25
Inv 5 9 12 12 13
A/P 17 22 23 27 35
NWC 13 23 29 22 19
Change in NWC 10 6 -7 -3

GB SA
shares 25 20
price 10 15
debt 50
300 300
 8 9 10 11 12 13 14 15 16
300000 300000 300000 300000 300000 300000 300000 300000 300000
105167.7 92252.38 80923.14 70985.21 62267.73 54620.82 47913 42028.94 36867.5

1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87

$1.67 $1.71 $1.76 $1.80 $1.85 $1.90 $1.95 $2.00 $2.05
=NPV() Present value of a stream of cash flows

rate 4%

t 0 1 2 3 4
CF ($1,000) $4,000 $4,000 $4,000
PV(CF) ($1,000.00) $3,846.15 $3,698.22 $3,555.99 $0.00

PV $10,100.36 Using equations from cheat sheet

=PV() Present value of an annuity

rate 6%
nper 13.00
pmt 30000.00
PV $265,580.49 =PV(discount rate, number of periods, -1*periodic cash

t 1 2 3 4
CF $100 $100 $100 $100
PV(CF) $94.34 $89.00 $83.96 $79.21

PV $346.51 Using equations from cheat sheet

=PV() Present value of a bond

rate 8%

t 1 2 3 4 5
CF $100 $100 $100 $100 $1,100
PV(CF) $92.59 $85.73 $79.38 $73.50 $748.64

PV $1,079.85 Using equations from cheat sheet

PV $1,079.85 =PV(discount rate, number of periods, -1*coupon payme

=FV() Future value of an annuity

rate 8%
nper 18.00
 pmt 4000.00
FV $75,528.55 =FV(discount rate, number of periods, -1*periodic cash fl

t 1 2 3 4
CF $100 $100 $100 $100
PV(CF) $92.59 $85.73 $79.38 $73.50

PV $450.61 Using equations from cheat sheet

=PMT() Size of annuity payments

rate 8% Example: 10-year annuity with PV=$300.

periods 10

PV $300

CF $44.71 Using equations from cheat sheet

CF $44.71 =PMT(discount rate, number of periods, -1*present valu

=NPER() Number of periods for annuity

rate 8% Example: Annuity with PV=$300, making annual paymen

CF $44.71

PV $300

periods 10 Using equations from cheat sheet

periods 10 =NPER(discount rate, -1*periodic cash flow, present valu

=IRR() Internal rate of return

t 0 1 2 3
CF ($500) $200 $200 $200

IRR 9.70% =IRR(<range of cells, beginning with initial cost and inclu

or IRR 9.70% =IRR({initial cost, cash flow 1, cash flow 2, cash flow 3, …
 =EFFECT() Effective annual rate (EAR)

APR 10.00% Example: EAR corresponding to APR of 10%

periods/year 4

EAR 10.38% Using equations from cheat sheet

EAR 10.38% =EFFECT(APR, number of periods per year)

=NOMINAL() Annual percentage rate (APR)

EAR 10.00% Example: APR corresponding to EAR of 10%

periods/year 4

APR 9.65% Using equations from cheat sheet

APR 9.65% =NOMINAL(EAR, number of periods per yea

Two ways to calculate yield to maturity:

Example: There is a bond making annual payments of $85 each, with $1000 par value, maturing in 3 years.

The formula for the present value of a bond is:

1 1  Par
PVbond  Coupon    T 

 y y  (1  y )  (1  y )
T

where 'y' is the yield to maturity, 'Coupon' is the size of each coupon payment, 'Par' is the bond's par value, and 'T'

(1) First method: Goal Seek

Step 1. Enter the bond's information into Excel.

Step 2. Create cell for YTM and (important) set it to 5% (a random guess at the YTM).

Step 3. Enter PV formula into Excel, making references to the YTM, coupon, par, and T.
Step 4. Select "Data: What-If Analysis: Goal Seek..."

Step 4(a). Make "Set cell:" the cell where you entered the PV formula (cell J132).

Step 4(b). In the "To value" box, type the price of the bond (in this example, $1040.2).

Step 4(c). Make "By changing cell:" the cell where you entered the YTM (cell J129).

If you've done this correctly, you should get a YTM of 6.969%.

(2) Second method: YIELD() formula

Step 1. Enter the bond's information into Excel.

Step 2. Enter a random date into one cell, and then a date exactly 'T' years later, where
T' is the number of years that the bond makes payments (in this example, 3 years).

Step 3. Enter the yield formula into Excel, making references to the price, coupon rate,
par, and the dates that you entered in the previous steps.

Notes: in the formula, 'settlement' and 'maturity' refer to the dates entered above;
rate' refers to the coupon rate; 'pr' refers to the bond's price per hundred dollars
of par value, so you need to divide this by 10 in the formula for a $1000 par value
bond; 'redemption' is the par value, in units of $100, so we must again divide by
10 in this example; 'frequency' is the number of payments per year, 1 in this case.
 5 6 7 8

$0.00 $0.00 $0.00 $0.00

er of periods, -1*periodic cash flow)

Example: PV of a 4-year annuity paying $100 per year.

Example: PV of a 4-year bond paying $100 coupons, $1000 face value.

er of periods, -1*coupon payment, -1*face value)

er of periods, -1*periodic cash flow)

Example: FV of $100 at the end of the next 4 years.

with PV=$300.

ber of periods, -1*present value of annuity)

=$300, making annual payments of $44.71

periodic cash flow, present value of annuity)

Example: Project with initial cost of $500, producing $200 cash flows for 3 years.

nning with initial cost and including end of period cash flows for each year>)

w 1, cash flow 2, cash flow 3, …})

R corresponding to APR of 10%, compounded quarterly.

ons from cheat sheet

, number of periods per year)

R corresponding to EAR of 10%, compounded quarterly.

ons from cheat sheet

AR, number of periods per year)

e, maturing in 3 years.

is the bond's par value, and 'T' is the number of payments.

Coupon Par # Paymts

$85 $1,000 3

YTM
5.000%

PV
$1,095.31
mula (cell J132).

s example, $1040.2).

e YTM (cell J129).

Price Coup rate Par

$1,040.20 8.50% $1,000

Date 1 Date 2
1/1/2000 1/1/2003

YTM
6.969%

es entered above;
hundred dollars
$1000 par value
again divide by
ar, 1 in this case.
Life (for Depr) 1
Salvage value 0
NPV 5,021.69 FCF=Net income+depreciation-CapEx-Change NWC
Investment (t=0) -
Discount rate 8%
IRR 300.00%
tax rate 0%

0 1 2 3 4
Revenues - 4,000 4,000 4,000
Expenses 1,000 5,000
DEPR - - - - -
Gain on Capital

EBIT (1,000) 4,000 (1,000) 4,000 -

TAX - - - - -
CAPEX - - - - -
Net Earnings (1,000) 4,000 (1,000) 4,000 -
Adding back Depr (1,000) 4,000 (1,000) 4,000 -

Net WC
Change in WC - - - - -

CF (1,000) 4,000 (1,000) 4,000 -

DCF (1,000) 3,704 (857) 3,175 -

apEx-Change NWC

-
* diff between sale value and depreciated value

-
-
* salvage value
-
-

-
-

-
Stock price S0 117.01
strike price X 97
Periods T 0.2602739726
Rf 6.43%
option price C0 23.00 26.72061
P0 1.43 5.15
u and d are given sigma is given
Stock price S0 40 Stock price S0
strike price X 40 strike price X
up rate u 1.105 annulaized SD of stock sigma
down rate d 0.905 length of period as fraction of a year h
risk free rate r 1.467% up rate u
Cu 4.200 down rate d
Cd 0 annual risk free rate rf
Delta 0.525 one period interest rate r
B -18.730 Cu
option price C0 2.270 Cd
risk neutral probability q 0.548 Delta
B
option price for one period C0
risk neutral probability q
 40
40
0.2
0.25 4
1.105
0.905
6%
1.467%
4.207
0
0.525
-18.726
2.273
0.548
Stock price S0 72
strike price X 72
Periods T 1
r* 5.00%
Sigma 26%
PV(X) 68.571
d1 0.318
d2 0.058
option price C0 9.111
P0 5.682
Delta N(d1) 0.625
Investment Opportuninty Variable Call Option
Present value of Project's Assets S Stock price
Cost to aquiore projects X Strike price
length of time to make decision T Time to expiration
time value of money Rf Risk free return
riskiness of project assets Sigma^2 Variance of stock return

"Regular" NPV S-X

"Modified" NPV S-PV(X)

NPVq S/PV(X)

Comulative Volatility (CVol) Sigma*SQRT(t)

Furmula

S 940160 * discounted cf (w/o future investment) of the project

X 9.6 * can be the future investment (looks like a strike price)
t 1
Rf 11.60%
Sigma 35% G 0 1+ revenue
1040000 1088880
PV(X) 8.6021505376 1040000 940160
NPVq 109,293.60 937,731
Cvol 0.35
Value from table: 18.10%
C0 $170,168.96
1+ cost 1+ profit PV 1
940160 148720 1606759 1606759
940160 0 460000
1033380
Corporate Tax Rate 40%
Total Shares before restructure 60

Current State
Assets including Cash $ 600.00 Equity $ 500.00
Debt $ 100.00

Announce Debt Issue

Assets $ 600.00 Equity $ 500.00
Cash from Debt $ - Debt $ 100.00
incremental Debt Tax Shield $ -

Debt issuance
Assets $ 600.00 Equity $ 500.00
Cash from Debt $ - Debt $ 100.00
Tax Shield $ -

Repurchase Equity
Assets $ 520.00 Equity $ 420.00
Old Cash used to repurchase 80 Cash from Debt $ - Debt $ 100.00
Tax Shield $ -

Value changes due to announcement of something good/bad

Assets $ 780.00 Equity $ 780.00
Cash from Debt $ - Debt $ 100.00
Tax Shield $ -
Total Shares Stock Price
60 $ 8.33

Total Shares Stock Price

60 $ 8.33

Total Shares Stock Price

60 $ 8.33

Total Shares Stock Price

50.40 $ 8.33

Total Shares Stock Price

50.40 $ 15.48
Beta of equity 0.5
D/E 0.8
D/(D+E) 0.444444
Risk free rate (rD) 4%
Risk premuim 5%
Tax Rate 0%
rA 6.5%
rE 8.5%
rWAAC 6.500%
Firm A Total Shares Stock Price
Assets including Cash $ 600.00 Equity $ 600.00 60 $ 10.00
Debt $ -

Firm B Total Shares Stock Price

Assets including Cash $ 400.00 Equity $ 400.00 10 $ 40.00
Debt $ -
Stock Price

Stock Price
Corporate Tax rate 40% Tc
Dividend Tax rate 18% Te
Interest income tax rate 30% Td
Equity 500
Debt 100
interest rate on debt 5%
Per dollar tax advantage $0.297 T*